Romney, Obama are both wrong on outsourcing

Robert B. Reich

President Barack Obama is slamming Republican challenger Mitt Romney for heading companies that were "pioneers in outsourcing U.S. jobs," while Mr. Romney is accusing Mr. Obama of being "the real outsourcer in chief."

These are the dog days of summer, and this is the silly season of presidential campaigns. But can we get real, please?

The American economy has moved way beyond outsourcing abroad or even "in-sourcing." Most big companies headquartered in America don't send jobs overseas and don't bring jobs here from abroad.

That's because most are no longer really "American" companies. They've become global networks that design, make, buy and sell things wherever around the world it's most profitable for them to do so.

As an Apple executive told the New York Times, "We don't have an obligation to solve America's problems. Our only obligation is making the best product possible." He might have added, "and showing profits big enough to continually increase our share price."

Forget the debate over outsourcing. The real question is how to make Americans so competitive that all global companies -- whether headquartered in the United States or not -- will create good jobs in America.

Apple employs 43,000 people in the United States but contracts with more than 700,000 workers overseas. It assembles iPhones in China.

But low wages aren't the major force driving Apple or any other American-based corporate network abroad. The components Apple's Chinese contractors assemble come from many places around the world with wages as high as, if not higher than, in the United States.

More than a third of what you pay for an iPhone ends up in Japan, because that's where some of the iPhone's most advanced components are made. Seventeen percent goes to Germany, whose precision manufacturers pay wages higher than those paid to American manufacturing workers because German workers are more highly skilled. Thirteen percent goes to South Korea, whose median wage isn't far from our own.

Workers in the United States get only about 6 percent of what you pay for an iPhone. This goes to American designers, lawyers and financiers, as well as Apple's top executives.

American-based companies are also doing more of their research and development abroad. The share of R&D spending going to the foreign subsidiaries of American-based companies rose from 9 percent in 1989 to almost 16 percent in 2009, according to the National Science Foundation.

What's going on? Put simply, America isn't educating enough of our people well enough to get American-based companies to do more of their high-value-added work here.

American students continue to do poorly in math and science relative to students in other advanced countries. Japan, Germany, South Korea, Canada, Australia, Ireland, Sweden and France all top us.

American universities continue to rank high, but many are being starved of government funds and are having trouble keeping up. More and more young Americans and their families can't afford a college education. China, by contrast, is investing like mad in world-class universities and research centers.

Transportation and communication systems abroad are also becoming better and more reliable. In case you hadn't noticed, American roads are congested, our bridges are in disrepair, and our ports are becoming outmoded.

Outsourcing is irrelevant. The way we get good jobs back is with a national strategy to make Americans more competitive -- retooling our schools, getting more of our young people through college or giving them a first-class technical education, remaking our infrastructure, and thereby guaranteeing that a large share of Americans add significant value to the global economy.

But big American-based companies aren't pushing this agenda. They don't care about making Americans more competitive. They say they have no obligation to solve America's problems.

They want lower corporate taxes, lower taxes on their executives, fewer regulations and less public spending. And to achieve these goals they have legions of lobbyists and are pouring boatloads of money into political campaigns.

The core problem isn't outsourcing. It's that the prosperity of America's big businesses -- which are really global networks that happen to be headquartered here -- has become disconnected from the well-being of most Americans.

Without a government that's focused on more and better jobs, we're left with global corporations that don't give a damn.

Robert B. Reich, Chancellor's Professor of Public Policy at the University of California and former U.S. Secretary of Labor, is the author of the newly released "Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix it," a Knopf e-book original.